October 27, 2015

Now that a government shutdown was temporarily averted, both
chambers face significant legislative challenges. Among the legislative
challenges are several bills that need action before pending expiration dates.
One bill that must be addressed is a tax extenders bill, which may impact the
renewable energy industry.

The Energy Policy Act of 1992 created a renewable energy incentive called the
production tax credit (PTC). This tax credit, under Section 45 of the Internal
Revenue Code, allowed a 2.3 cent/kilowatt-hour income tax credit for producing
electricity from renewable energy. Likewise, the investment tax credit (ITC)
was created under the Energy Policy Act of 2005. The investment tax credit is
allowed under section 48 of the Internal Revenue Code. This tax credit allowed
certain solar and wind projects to be eligible for a 30 percent credit for
development costs. The investment tax credit is earned at the time the
qualifying facility is placed in service. In 2013, Congress extended the PTC
that expired, but it was a one-year, retroactive extension that terminated a
few weeks later at the end of 2014. On December 31, 2016, the ITC will expire
and subsequently, the tax credit provided at the end of a project’s first year
of operation will fall to 10 percent for commercial solar investments and to
zero for residential solar investments.

Last month, the House Ways and Means Committee passed a tax extenders package
that would permanently extend several expiring tax breaks but did not include
renewable energy incentives. Conversely, the Senate Finance Committee
passed its tax extenders package in July. The Senate package included a
two-year extension of the production tax credit. It would extend for two more
years the $0.023/kWh tax credit for projects that start construction by the end
of 2016.

As stated earlier, the ITC currently does not take effect until the project is
completed. But United States Senator Charles Schumer (D-NY) announced that he
intends to propose legislation extending the ITC. Moreover, Senator Schumer
proposed not only extending the ITC, but also amending the credit’s eligibility
rules so that businesses and developers that invest ins solar projects can
claim the tax credit when project construction begins, as opposed to when the
panels start generating power. Senator Charles Schumer stated that the
extension and the change in the regulations that would mirror the wind energy
tax credit, which currently is implemented soon after work begins on a project.
The change is particularly vital for businesses and large-scale solar
developers, which make major investments in solar, but do not benefit from the
tax credit until the systems are placed in service.

In conclusion, if Congress is unable to reconcile their differences and pass a
tax extenders bill that the president can sign into law, the lawmakers may
attempt to include a two-year tax extension in next year’s omnibus spending
bill with a special in-construction provision for projects that break ground by
the deadline. But first Congress must address the debt ceiling limit as well as
preventing another possible government shutdown in December.